The fact that fear of terrorism is still widespread isn't surprising or uncalled-for.
When I complain about fear making people stupid, what I mean is people are reacting stupidly and irrationally because of their fear. We need to panic intelligently. For example, don't freak out when you see brown people and Arabic lettering. That is counter-productive, as the more false alarms are raised, the less wary the populace will become when there is actually a need for alarm.
Also, the more stupidly and horribly people react to others because of superficial differences, the more injustices heaped on a certain type of class or person, the more likely it is that support for terrorism will increase and terrorists will get more clever and innovative to foil the stereotyped image. There will come a point at which scary looking brown people with electronic devices will be safer to fly with than cleancut white people with books.
If you see someone acting or looking suspiciously (not Arabic lettering, beards, or dark skin), calmly inform an official of some sort who should be able to refer the matter on to people who are qualified to deal with it. Of course, that would mean less of a "no fly list, racial profiling" mindset and more of a "comprehensive and sensible plan that will work, such as having people who are actually qualified to assess threats" mindset. We should adopt El Al's security procedures. That's panicking intelligently.
Big Ink lead me to a story (via Ishbadiddle) from a guy who dropped his iPod into an airplane toilet. TSA was contacted (before anyone knew it was just an iPod in the toilet) and a whole series of procedures then had to blindly be followed. If you look at it from the government's point of view, better safe than sorry. Even though they had been informed that it was just an iPod and not a bomb, they still had to go through their security checklist in case the guy was an incredibly talented and devious bomber, a la Hollywood Bad Guy.
As annoying as it was (the officials didn't need to be such dicks about it, but that's my opinion) I think that was a case of panicking intelligently, as well.